Strategy, Innovation, Business Models, Proptech, RETech

China’s Baby Bust: Consumers, Birth Rates, and Government Impotence

China recently announced intentions to loosen its One Child Policy as part of a broader shift towards a consumption-based economy. As the theory goes, more births equal more demand for products and services as well as additional security for China’s savers that they will be looked after in older age – either directly by their numerous kids or indirectly through transfer payments from younger workers. Unfortunately, the relationship between consumption and birth rates is not straightforward or one-sided: Social, cultural, and environmental factors stemming from China’s fledgling consumer culture are pushing birth rates down and are likely to continue to do so regardless of government policy. Here’s how.

On the second weekend of November, China’s leaders were huddled in central Beijing, drafting an announcement in support of “consumer-led economic growth”. On the following Monday, Chinese consumers spent more than USD 5 billion online, breaking global e-Commerce records. The spending boom was not a response to Beijing’s policy announcements; it was a celebration of Singles Day, a recent tradition invented by local college students and popularized by online retailers. Singles Day is seen as China’s response to the West’s Valentine’s Day – an opportunity for the country’s growing number of unmarried adults to celebrate their singularity. Singles Day also illustrates a key characteristic of contemporary China: Spending and family don’t necessarily go (or grow) hand in hand.

China’s One Child Policy may be objectionable on humanist or religious grounds but its actual impact on births is underwhelming. Concessions in the original legislation already exempt minorities and families where both parents are themselves single children; they allow rural residents to have a second baby in case the first one is a female; and they enable urban residents to have two or more children in exchange for a modest penalty. Thus, the original policy only fully affected a third or so of China’s population and left quite a bit of choice even to those fully affected. China’s Total Fertility Rate (TFR) declined during the One Child era but it was already in free fall before the policy came into effect – down from around 6 births per woman in the 1960s to 2.63 in 1980.

China’s current TFR is around 1.7 – higher than Japan, Korea, Thailand, and Russia; on par with Vietnam and Brazil; and lower than the US, Australia, and Turkey. It is not high, but nor is it exceptionally low for a country at this level of development. China’s most developed cities already have some of the world’s lowest birth rates, with Shanghai reaching to 0.7 – lower than New York, Tokyo, or Hong Kong. This is partly to do with stress and environmental factors driving a decline in fertility even for those who are trying to have children.

Meanwhile, China’s divorce rate is growing much faster than the marriage rate and those who are getting married do so at an older – and less fertile – age. On the other hand, local traditions make it unacceptable for Chinese women to have a Child outside of a marriage and only a small percentage Chinese women choose this path – compared to more than 50% of children being born to unmarried women in some European countries. Chinese families fall apart in the race to secure a “better” life by working away from home, for longer hours, and the tyranny of keeping up with the conspicuos consumption of real neighbors and fictional cultural icons. Flashy advertising campaigns and social networking apps teach consumers to be self-centered and short-sighted, further undermining the prospect of stable marriages and childbirth.

Contrast this with America’s Baby Boom, made possible by a post-war increase in the marriage rate and a decline in the age in which people were starting a family. That generation spent a lot on homes, cars, and appliances, but still saved 3-4 times more than today’s Americans. It took more than three decades for status (as opposed to necessity) consumption to become the norm in the US, and five decades for all goods to become easily accessible through online commerce and for advertising to reach its current level of sophistication. In China, consumer culture’s negative effects are already on full display and not only in the main cities. Ubiquitous online and mobile access enables marketing and sales channels to reach into every corner of the Middle Kingdom; consumers outside of China’s most developed cities actually spend more time and more money shopping online that those in, say, Beijing or Shanghai.

In summary, loosening government restrictions is not likely to have a dramatic effect on birth rates. On the other hand, attitudes and behaviors associated with China’s consumer revolution will continue to delay and undermine marriages and put downward pressure on total fertility rates. This does not mean that Chinese consumption won’t grow or even boom; it means that consumption’s correlation with birth rates is more likely to be negative. As a result, China’s population will continue to age, perhaps even faster – making it more difficult for the government to finance welfare and pension payments. As consumers grow old, they are likely to spend more and more of their savings to make up for the government’s inability to support them or their loved ones. And so, China’s savings rate will continue to decline – but for all the wrong reasons.

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